What's the first thing that comes to mind when you hear cost control? Cutting costs, right? Well, it may come as a surprise, but slashing costs is not the main theme of this chapter. Cost control is just one element in the larger playing field of profit management. The best, or optimal, cost is not always the lowest cost.

A knee-jerk reaction is that costs should be lower. Don't rush to judgment. In some situations, increasing costs may be the best path to increasing profits. It's like coaching sports: You have to play both defense and offense. You can't play on just one side of the game. Making sales is the offense side of business; defense is keeping the costs of making sales and operating the business less than sales revenue.

The planning process includes numerous elements, ranging from obtaining current market information to evaluating personnel resources to preparing budgets or forecasts. The first part of this chapter focuses on one of the most critical elements of the planning process: preparing a budget.

Budgets aren't based on the concept of “How much can I spend this year?” Rather, ...

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